1.2 Overview of the Investment Environment
1.2.1 Economic development in recent years
According to the 2016 Trade Statistics Report released by the WTO on November 2, 2016, pakistan's international trade situation in 2015 was not optimistic, and trade in goods and trade in services fell sharply, as follows:
In 2015, Pakistan's gross domestic product (GDP) was $269.971 billion; From 2013 to 2015, the average annual GDP per capita was $1341, the average annual trade volume per capita was $206, the ratio of trade volume to GDP was 15.3% per year, and from 2012 to 2014, the current account deficit was 1.5% per year.
From the global ranking, Pakistan's import and export of goods in 2015 ranked 52nd and 66th in the world, excluding intra-EU trade, it ranked 34th and 45th, respectively; Imports and exports of trade in services were ranked 68th and 87th globally, excluding intra-EU trade, at 48th and 60th, respectively.
Trade in goods:
In 2015, Pakistan's imports and exports of goods were US$44.219 billion and US$22.188 billion, down 7% and 10% year-on-year, accounting for 0.26% and 0.13% of global trade in goods, respectively. From 2010 to 2015, imports and exports increased by an average of 3% and 1% respectively.
From the perspective of commodity structure, the main imported products are manufactured industrial products, energy and mineral products, agricultural products and other products, accounting for 56.5%, 26.5%, 16.2% and 0.7% respectively; The main export products are classified as manufactured goods, agricultural products, energy and mineral products, and other products, accounting for 75.7%, 21.0%, 2.7% and 0.5% respectively.
From the perspective of country structure, the main import sources are China, the United Arab Emirates, the European Union and Saudi Arabia, accounting for 25.0%, 13.0%, 9.7% and 6.8% of the import value respectively; The main export destinations are the European Union, the United States, China and Afghanistan, accounting for 30.1%, 16.6%, 8.8% and 7.8% of the export value respectively.
In terms of agricultural products, imports and exports were US$6.076 billion and US$4.600 billion respectively, down 4% and 10% year-on-year, respectively. The main exports were rice, wheat and flour, alcohol over 80% concentration, sugar and fresh or dried citrus fruits, with exports of US$1.927 billion, US$323 million, US$308 million, US$234 million and US$185 million respectively; The main imports were palm oil, cotton, vegetables, tea and soybean oil residues, with imports of US$1.653 billion, US$544 million, US$493 million, US$458 million and US$397 million respectively.
In terms of non-agricultural products, imports and exports were US$37.873 billion and US$17.484 billion, down 8% and 11% respectively. The main exports are: fabric products for beds, dining tables, toilets and kitchens, cotton yarns with a cotton content of more than 85%, men's clothing, woven fabrics with a cotton content of more than 85%, and women's clothing, with exports of US$2.908 billion, US$1.530 billion, US$1.173 billion, US$1.006 billion and US$781 million, respectively; The main import products are refined oil, crude oil, scrap iron, motor vehicles and power generation equipment, with imports of US$5.898 billion, US$3.023 billion, US$1.025 billion and 8.91 in order
$100 million and $801 million.
Trade in Services:
In 2015, Pakistan's imports and exports of services trade were US$7.378 billion and US$3.277 billion respectively, down 5% and 7% year-on-year, accounting for 0.16% and 0.07% of global services trade, respectively. Among them, the main import services were transportation, other commercial services, travel and cargo-related services, accounting for 47.2%, 34.1%, 17.2% and 1.5% respectively; The main export services were other commercial services, transport, travel and cargo-related services, accounting for 58.3%, 32.2%, 9.4% and 0.1% respectively.
In terms of trade in transport services, imports and exports were US$3.48 billion and US$1.054 billion, respectively, down 13% and 21% year-on-year, respectively, and down by 1% and 6% per year from 2010 to 2015. In terms of import composition (2014), imports of sea, air and other transport services were US$274 million, US$1.064 billion and US$4 million, respectively, accounting for 20.4%, 79.3% and 0.3% respectively; In terms of export composition (2014), exports of sea, air and other transport services were US$2.635 billion, US$1.316 billion and US$37 million, accounting for 65.9%, 32.9% and 0.9% respectively. In terms of trade in tourism services, imports and exports were US$1.27 billion and US$309 million respectively, up 4% and 9% year-on-year, respectively; From 2012 to 2015, the average annual growth rate was 7% and 0%.
In terms of goods-related services, imports and exports were US$114 million and US$4 million respectively, an increase of 37% and 56% respectively year-on-year; From 2010 to 2015, the average annual growth rate was 9% and 6%.
In terms of other trade in services, imports and exports were US$2.515 billion and US$1.910 billion respectively, an increase of 2% year-on-year; From 2010 to 2015, the average annual growth rate was 7% and 10%.
Pakistan's Dawn newspaper reported on October 14, 2016, after ending a three-year aid loan program, the International Monetary Fund (IMF) recommended that the Pakistani government carefully manage the China-Pakistan Economic Corridor (CPEC) related projects and continue to promote the reform process to create a good investment and business environment and further ensure economic stability.
As China's independent power producers (IPPs) come into operation, the profit returns generated by these companies will increase year by year. "According to the relevant terms of the government concessional loan, the government's repayment obligations (including principal and interest) related to CPEC will be gradually increased starting in the 2020-2021 fiscal year. Taken together, the long-term CPEC-related capital outflows will reach 0.4% of annual GDP. ”
The IMF said Pakistan's macroeconomy would remain strong thanks to the massive infrastructure development and investment pick-up brought about by the CPEC plan, as well as private sector credit growth.
Pakistan's Tribune Reported on April 28, 2016, Moody's Investments gave Pakistan a B3 "stable" credit rating, saying that despite Pakistan's relatively high government debt burden and political risks, its structural reforms have made progress and promoted stable economic growth. The main evaluation indicators of this rating are: economic strength - stability; Institutional strength – very low; Financial strength – very low; Risk of contingencies – high.
Moody's robust assessment of Pakistan's economic strength takes into account the country's extremely low per capita income and larger economy size, and believes that its economic output has developed relatively healthy in recent years, and that CPEC will further help Pakistan improve its energy situation and investment environment; In terms of institutional strength, pakistan's government governance is still weak, but the central bank's inflation control, fiscal policy and IMF loan reform have achieved some success; In terms of fiscal strength, Pakistan's heavy debt burden and insufficient fiscal revenue have greatly reduced its debt sustainability, and although the proportion of external debt in Pakistan's government debt has gradually decreased to about 1/3 in the past 5 years, it still causes its currency depreciation and securities market volatility pressure; In terms of emergencies, Moody's believes that Pakistan's domestic and regional political problems will pose greater risks to its economic development.
1.2.2 Resource reserves and infrastructure
Pakistan is rich in coal resources. According to estimates by the Geological Survey of Pakistan (GSP), Pakistan's coal resources are around 185 billion tons, of which 184 billion tons are in Sindh, accounting for 99.5% of the national total. Pakistan's main mineral reserves are: 492 billion cubic meters of natural gas, 184 million barrels of oil, 185 billion tons of coal, 430 million tons of iron, 74 million tons of bauxite, and a large number of chrome ore, marble and precious stones. Forest cover is 4.8%.
According to the International New Energy Network reported on October 25, 2016, 35 key wind power projects in Pakistan are in full swing, and the wind power projects with a total installed capacity of 1749.2MW are expected to be put into use in 2018. Official sources said that 12 of these wind farms with a total of 587.2MW have supplied power to the national grid system. It is reported that another 5 wind farms with a total installed capacity of 298MW have completed financing and started construction. The 18 wind farms, with an installed capacity of 864MW, are also in various stages of construction and are expected to be completed in 2018.
Pakistan's domestic passenger and freight transport is mainly by road. The road and air transport networks are increasing much faster than railways. As of 2012, Pakistan has a total length of 260,000 kilometers and about 9.41 million motor vehicles of all kinds. Pakistan accounts for 90% of total passenger traffic and road freight accounts for 96% of total freight traffic. As of 2012, the total length of roads in Pakistan is 7,791 kilometers. Between 2011 and 2012, there were 41 million passengers and 60,000 wagons.
Karachi and Qasim are two international ports in Pakistan, responsible for 95% of Pakistan's international freight traffic. From July 2011 to March 2012, the total throughput of the port of Karachi was 27.8 million tons, and the total throughput of the port of Qasim was 19.1 million tons.
Pakistan International Airlines has 44 civil aviation aircraft flying to 38 international airports and 24 domestic airports. The total length of the route is 345,900 km. Five international airports are in Islamabad, Karachi, Lahore, Peshawar and Multan.
1.2.3 Pillars and Key Industries
The textile and garment industry is Pakistan's pillar industry, accounting for more than 66% of the country's total exports. Because of the EU's ultra-GSP treatment, more than 600 textiles in the country can enter the markets of 27 EU member states duty-free, and Pakistan also has a large textile quota to use.
In terms of raw materials, Pakistan is the world's fourth largest cotton producer, and in order to promote the domestic production of 40S-120S high-end yarn, the country allows free import of high-quality cotton. In terms of labor, labor wages are basically the same as in other Southeast Asian countries, far lower than in China.
Pakistan's cotton cloth has always had a strong competitive advantage due to low prices, but with the gradual convergence of mainland lint prices with international standards, as well as the rapid development of textiles in India and Vietnam, while Pakistan's textile industry has stagnated, energy costs are high (electricity costs are 2 times that of neighboring competitor countries), and its textile exports have declined. In order to protect the development of the country's pillar industries, the Pakistani government has introduced many plans to support the development of the textile industry.
In the 2012/13 fiscal year, Pakistan absorbed US$1.447 billion in FDI and attracted foreign investment in the main areas of oil and gas extraction, financial services, communications, chemicals, construction, transport, energy and textiles. According to the World Economic Forum's Global Competitiveness Report 2013-2014, Pakistan ranks 133rd among the 148 most competitive countries and regions in the world.
1.2.4 Investment Policy
(1) Foreign investment system
The Ministry of Investment of Pakistan is the federal government responsible for investment affairs, and the main responsibilities of the Investment Authority (BOI) under its jurisdiction include liaison and linking between investors and other government departments, establishing an investment docking database and providing the necessary information and advisory services required by investors. The Pakistan Investment Authority has branches in all provinces. (BOI official website: boi.gov.pk)
Investment Regulations:
According to Pakistan's Foreign Private Investment (Promotion and Protection) Act 1976, the Economic Reform Promotion and Protection Act 1992 and Pakistan's Investment Incentives, all sectors of Pakistan's economy are open to foreign investment, foreign investors enjoy the same treatment as domestic investors, and foreign investors are allowed to own 100% of the equity. In terms of the minimum amount of investment, there is no restriction on manufacturing, but in non-manufacturing, there are minimum requirements depending on the industry, with a minimum of $150,000 in the service sector (including finance, communications and IT) and $300,000 in agriculture and other industries.
(2) Investment industry restrictions
The five areas in which investment is restricted under Pakistan's investment policy are: weapons, high-strength explosives, radioactive materials, securities printing and coinage, and alcohol production (except industrial alcohol). In addition, since Pakistan is an Islamic country, foreign enterprises are not allowed to engage in entertainment and leisure industries such as nightclubs, dance halls, cinemas, massages, baths, etc.
Investment attractiveness
The Pakistani government encourages foreign enterprises to invest in export processing zones to set up factories, and the policies of various industrial zones are relatively flexible and there is no unified preferential policy.
There are 21 export processing zones in Pakistan (6 have been built), and the relevant policies can be found on the official website of the Export Processing Zones Authority (www.epza.gov.pk/incentives.html). Preferential measures include:
- Tax exemption for imported machinery, equipment and materials;
- Inputs used for production are exempt from sales tax;
- Obsolete or obsolete machinery and equipment may be sold in the local market of Pakistan after payment of appropriate duties and taxes;
- Cement, steel and any other material used in the construction of buildings are exempt from excise duties and duties;
- Not subject to state restrictions on imports;
- Pakistan's exchange control regulations do not apply to EPZs;
- products that can be sold on the domestic market of Pakistan with no more than 20% of the production volume;
- Defective products may be sold in the local market of Pakistan after payment of appropriate tariffs (up to 3% of the export value);
- Under certain conditions, a duty-free car may be owned and, after 5 years of use, it may be sold in the local market of Pakistan after paying customs duties at depreciated value.
(3) Investment exit policy
Three steps to closing a company:
Step 1: Eligibility Screening
All private and public unlisted companies, including approved non-profit organisations under section 42 of the Companies Ordinance 1984, may submit an application to remove their names from the incorporation. In accordance with the 2014 Simplified Corporate Exit Regulations, the following exceptions apply:
- subsidiaries of listed companies;
- foreign companies;
- trade organizations authorized under the Trade Organization Act 2013 (Second Edition 2013);
- Companies that owe loans to banks or financial institutions, or taxes, utilities, etc. to government departments;
- The company is being investigated, inquired into or inspected by the relevant authorities, or is in the initial stages of litigation, and the court has not yet ruled;
- a company in dispute over management and equity; - companies that have violated the law or cheated;
— Real estate development and marketing companies;
- The company's deposits from the public have not been returned, or the promised delivery service has not yet been completed
of;
Step 2: Submit your application
The following documents/forms should be submitted to the relevant company registry and an application for delisting of the company:
— Application for delisting of the company (Form EE—I);
—Member Resolution (Form EE—II);
— Declaration/Indemnity (Form EE—III);
— Auditor Certification (Form EE—IV);
Step 3: Pay the relevant fees
The Sixth Schedule to the Companies Ordinance 1984 sets out the application fees that should be paid by the applicant company.
1.2.5 Economic and trade cooperation
Pakistan is a member of the World Trade Organization, the Organization of the Islamic Conference, the Group of 77, the Non-Aligned Movement and the Commonwealth.
1.2.5.1 Construction of China-Pakistan Economic Corridor
The concept of CPEC was proposed by the Prime Minister during his visit to Pakistan in May 2013 to expand bilateral exchanges and cooperation between China and Pakistan in the fields of transportation, energy, oceans and economy, so as to strengthen the interconnection between China and Pakistan and promote common development. The China-Pakistan Economic Corridor is of great strategic significance, this economic corridor can not only drive Pakistan's domestic economic development, create a large number of employment opportunities for Pakistan, at the same time, this economic corridor will also open the sea for China's southern Xinjiang facing the Persian Gulf in the Indian Ocean, greatly facilitating the economic and trade exchanges between the formerly closed southern Xinjiang and the outside world, thus effectively driving the economic development of china's southern Xinjiang areas with inconvenient transportation. CPEC also extends to Iran's Persian Gulf coastal states, benefiting approximately 3 billion people living in Iran and the Persian Gulf region.
As of September 2014, China and Pakistan have signed agreements on various projects related to the China-Pakistan Economic Corridor. CPEC will contain 30 large-scale projects with a total investment of about US$32 billion. In April 2015, the Chairman visited Pakistan, where he and Pakistani Prime Minister Sharif jointly announced the start of five major power projects and signed 51 cooperation agreements and memorandums of understanding with Pakistan, with an investment of US$46 billion, equivalent to three times the total foreign investment received by Pakistan in the past eight years.
The CPEC construction is divided into three phases, the first phase will be completed in 2017, the second phase will be completed in 2020, and the third phase will be completed in 2025-2030.
1.2.5.2 Investment status of Chinese enterprises in Pakistan
The main Chinese-funded enterprises investing in Pakistan are: China Mobile Simbak Company, United Energy Pakistan Branch, China-Pakistan Joint Investment Company, Huawei, ZTE, Haieruba Economic Zone, China Water and Power Foreign Company and Construction Group Corporation, China Construction Engineering Co., Ltd., China Road and Bridge Engineering Co., Ltd., CNPC Oriental Geophysical Pakistan Branch, PetroChina Chuanqing Drilling Engineering Co., Ltd., China Southern Airlines, Gezhouba, China Metallurgy, China Harbor, Air China, COSCO Transport Company, Puram Scooter Company, Xinjiang Foreign Transport Bazhong Sust Port Co., Ltd., Shanghai Radio and Television Luba Electric Company, Shanghai Radio and Television Luba Molding Company, China Yuncheng Plate Making Lasher Branch, Changhong-Luba Trading Company, etc. The main Chinese-funded financial institutions investing in Pakistan are: China-Pakistan Joint Investment Corporation (a joint venture between China Development Bank and Pakistan), China Development Bank and Industrial and Commercial Bank of China.
Foreign contracting projects invested by Chinese-funded enterprises in Pakistan include: China-Pakistan Friendship Center (Shanghai Construction Engineering), Manguela Dam Heightening Project (China Water External) and so on. The important projects under construction include: The Nealum Jerem Hydropower Station Project (Gezhouba Group), the Karakoram Highway Upgrading Project (China Road and Bridge), the Islamabad New Airport Terminal Project (China Construction), the Benkashim Combined Cycle Power Station (Harbin Electric), the Gudu Combined Cycle Power Station (Harbin Electric), the Jinna Hydropower Station (Dongfang Electric), the Nandipu Combined Cycle Power Station (Dongfang Electric), the M-4 Expressway Project (China Water External) and the Karachi Port Breakwater Project (China-Hong Kong).
The main project contract information is as follows: Mangra Dam Project (US$240 million) - China Water External, Nealem Jerem Hydropower Station (US$1.5 billion) - Gezhouba Group and China Machinery and Equipment Export Corporation, Qalakunlun Highway Renovation and Upgrading (US$350 million) - China Road Bridge, Islamabad New Airport Terminal (US$236 million) - China State Construction, Jinna Hydropower Station (US$128 million) - Dongfang Electric. The Silk Road Fund, the Three Gorges Group and the Private Electricity and Infrastructure Commission of Pakistan signed a Memorandum of Understanding on joint development of hydropower projects in Pakistan in Islamabad, in which the Silk Road Fund will invest in the Three Gorges South Asia Corporation, which is controlled by the Three Gorges Group, to develop clean energy in Pakistan, including providing financial support for the company's first hydropower project, the Karot Hydropower Project on the Giram River, while the Private Power and Infrastructure Commission of Pakistan will facilitate the Silk Road Fund and the Three Gorges Group.
The China Syndicate, led by the China Development Bank and the Export-Import Bank of China, signed a financing document with CLP Hub Power Station Company, agreeing to provide a US$1.5 billion investment in CLP Hub to build a 1320MW coal-fired power station and terminal in Pakistan's Balochistan Province, which will meet 75% of the project's investment needs.
In November 2017, Bank of China officially opened in Pakistan, with its first branch in Karachi. China Bank Card Rachi Branch is a financial institution with a full banking license approved by the Central Bank of Pakistan and will provide strong support for the "Belt and Road" initiative and the construction of the "China-Pakistan Economic Corridor".
The China Development and Reform Commission (NDRC) and the Pakistan Investment Commission (BOI) agreed to prioritize three special economic zones (SEZs) at the second CPEC Industrial Cooperation Working Group meeting in October 2017. The three priority special economic zones are the M3 Industrial City of Faisalabad in Punjab, the Tajibe China Special Economic Zone in Sindh Province, and the Hattar Special Economic Zone in Cape Province. The development of special economic zones is the most important part of the long-term planning of CPEC and will effectively promote Pakistan's industrialization process, create new jobs and sustainable bilateral cooperation. The Pakistani government will introduce a new mechanism to encourage investment in these three priority special economic zones, and China will assist, encourage And provide corresponding facilitation for Chinese enterprises to develop landmark projects in the economic zones.
Driven by Chinese and Malaysian investment in Pakistan, FDI in Pakistan maintained its upward momentum in the first four months of the 2017-18 fiscal year, up 74.4% from the same period last year. Economists say China is increasing its investment in Pakistan under the China-Pakistan Economic Corridor, mainly in the power sector and the construction sector. In the power sector, the main investment is concentrated in coal power projects.
According to the Central Bank of Pakistan, FDI in Pakistan was US$940 million in July-October 2017, with China and Malaysia accounting for the largest share of investment in Pakistan, accounting for 78% of Pakistan's total FDI. China's direct investment in Pakistan was US$631.7 million, Malaysia's direct investment in Pakistan was US$107 million, and the power sector and the construction sector attracted the most foreign direct investment in terms of industry, at US$422 million and US$177 million respectively.
1.2.5.3 Pakistan is an important fulcrum country of the Belt and Road Initiative
Pakistan is an important country along the "Belt and Road". Pakistan actively supports and cooperates with the Belt and Road Initiative and is the fulcrum country of the Belt and Road Initiative. Geographically, Pakistan is an important country along the "21st Century Maritime Silk Road". Pakistan is located in the northern part of the Arabian Sea, close to the outlet of the Persian Gulf. In particular, the port of Gwadar, located in the balochistan province of southwest Pakistan, guards a number of important international routes from Africa and Europe through the Red Sea and the Persian Gulf to East Asia and the Pacific, and is only about 400 kilometers away from the Strait of Hormuz, the main global oil supply channel, making it a very important strategic location.
In 2001, China agreed to invest one-fifth of the funds to build the first phase of the Gwadar Port and to send 450 engineers and technicians to participate in the construction. After the completion of the Gwadar Port, it was first operated by a Singaporean company, and the Pakistani government has now fully handed over the operation of the Gwadar Port to Chinese enterprises. The port of Gwadar is not only China's supply station and transit base in the Indian Ocean, but also China can rely on the port of Gwadar to travel to the Persian Gulf, the Red Sea, the Mediterranean Sea and the Atlantic coast. The port can become an important support point for the "Belt and Road" initiative and play an important supporting role for the "Belt and Road" initiative. At the same time, the ports of Gwadar and Karachi, as two important port cities of Pakistan in the Arabian Sea, can also serve as ports for Pakistan's foreign trade, driving the development and prosperity of Pakistan's interior.
1.2.6 Investment Considerations
(1) Political stability
Political stability is the premise of economic development, and the first thing to consider for overseas investment is the political environment.
China-Pakistan relations have always been friendly and are "hardcore brothers," and the political environment was originally very favorable to the mainland's investment in Pakistan, but due to the turmoil in Pakistan's domestic political situation and its passive position in the international environment, the mainland's investment in Pakistan is facing greater political risks.
Political instability in Pakistan
Since Pakistan's independence on August 14, 1947, the three-way rivalry between the government, the Supreme Court and the military has not stopped. Pakistan means "halal country", as the name suggests, its domestic residents believe in Islam, up to 97%, but Islam is not unified, but there are many sects, sunni number accounts for 75% of the country's Muslims, Shiites account for 20% of the country's Muslims, due to the difference in doctrine and sharia, there are often conflicts between the two major sects and within sunnis, which are often linked to political struggles, making the political situation in Pakistan more complicated. The intensification of religious contradictions has exacerbated social unrest. Among them, the problem of national separatism is particularly serious, and national separatism exists in almost all provinces.
Pakistan's terrorist forces have always existed, but since 2007, due to the cross-border entry of global terrorism and regional terrorism into Pakistan, its domestic terrorist activities have shown a trend of aggravation, organization and internationalization, and have gradually become the hardest hit areas of terrorist attacks. Because terrorist forces in Pakistan have not been effectively contained, Pakistan has almost become a gathering place for international terrorist forces.
Interference by India and the United States
Because the long-standing territorial dispute between the mainland and India has not been effectively resolved, and the implementation of the Belt and Road involves the overall interests of the Indian Ocean region, India, as a major country in South Asia, will inevitably seek its own interests, so the mainland's investment in Pakistan has been interfered with by India. Soon after the mainland proposed the Belt and Road Initiative, the Modi government proposed the Four Seasons Plan, which seeks to rebuild its relationship with its ancient trading partners and build an Indian-centric "Indian Ocean world", which is obviously using its geopolitical advantages and historical culture to expand its political and economic influence against China.
As the only hegemon in the world in the 21st century, the United States is fighting for its own interests around the world. In the rise of the Indian Ocean region, the opportunities outweigh the challenges, and the United States will certainly not stand idly by. At the same time, the increasing comprehensive national strength of China has made the United States feel that its hegemonic position is threatened, coupled with the ideological differences between China and the United States, and the contradictions are escalating. Coupled with the consensus and conflict between Pakistan and the United States due to the problem of counter-terrorism, the intervention of the United States is also more complicated, and There is no doubt that Chinese investment in Pakistan will be interfered with by the United States.
(2) Economic risks
On the one hand, the "Belt and Road" can promote mainland enterprises to go global, realize the transformation and upgrading of economic development, strengthen cooperation and communication between the mainland and relevant countries, and enhance the mainland's economic strength and international influence; On the other hand, this cross-border investment environment is more complex, and China faces greater risks, as well as economically.
A. Risk of default
Pakistan's economy is in poor condition and its foreign exchange reserves are insufficient. The level of foreign direct investment is low, the tax level is poor, the proportion of central tax revenue in GDP is only about 9%, and the ability to generate foreign exchange is insufficient, and the trade deficit is increasing year by year. In addition, Pakistan's external debt is huge and its balance of payments dilemma is aggravated. As of the end of December 2015, Pakistan's external debt totaled US$64,928 million, an increase of 75% from 2006 to 2015.
Pakistan has relied on IMF loans since 1988, with every government lending to the IMF as soon as it came to power, but the repayment rate was extremely low, and many loans were stopped due to the reality of the inability to repay the loan. It can be seen that Pakistan's ability to repay its debts is extremely low, so the return on China's investment in Pakistan is very low, and some of them may become bad debts, and China is very likely to become a high-risk debtor.
B. Projectization and bubble risk
With the deepening of economic exchanges between China and Pakistan, Chinese investment in Pakistan has gradually increased. On the one hand, China's investment in Pakistan is mainly concentrated in infrastructure areas, such as railway construction, road construction, energy construction, etc., and the investment is project-oriented; On the other hand, although successful investment can promote the development and friendly exchanges between the two countries, the risk of investment bubbles cannot be ignored.
C. Risk of nationalization and expropriation
Whether Chinese investment in Pakistan is in line with public opinion and whether Chinese investment can be strongly supported by the government is an inconclusive question. China is often in a passive position in the process of outbound investment, while the host country is relatively more proactive, so the host country often nationalizes or expropriates foreign-invested enterprises for its own benefit. Chinese investment in Pakistan is also in danger of being nationalized and expropriated, and since the place of investment is in Pakistan, Pakistan certainly has a greater say in formulating policies or interpreting policies for its own benefit.
(3) Environmental risks
The so-called environmental risk refers to the risk that China's overseas investment will be stopped or even claimed if it does not pay attention to environmental pollution issues. In recent years, chinese enterprises have caused environmental pollution and ecological problems to the host country, and have been labeled as "China's neo-colonialism", "China's environmental threat theory", "China's ecological dumping theory" and so on.
In January 2015, a Chinese company's investment project in the suburbs of Cancun, Mexico, Inuyasha Cancun, was halted by the Mexican Environmental Protection Agency for violating ecological balance and environmental protection regulations. The Myitsone Dam in Myanmar was also halted for non-compliance with environmental impact assessment report requirements and its potential environmental damage. It can be seen that environmental problems will not only have an impact on the host country, but also bring risks to Chinese investment.
(4) Other risks affecting investment
Power shortages
Due to the lack of overall energy planning, unreasonable energy structure, and underutilization of local coal and water resources, the power shortage in Pakistan has intensified. At present, the capacity utilization rate of a large number of power plants in Pakistan is less than 50%, and the lack of electricity has greatly affected people's lives. During the peak of summer electricity consumption, large cities such as Islamabad and Karachi in the capital city of Islamabad and Karachi have been cut off for up to 4 to 8 hours a day, and small towns and rural areas have been cut off for more than 12 hours a day, and factories, merchants, and wealthy families have purchased their own generators for backup. The shortage of electricity has prevented Pakistan's pillar industry, the textile industry, from fulfilling orders on time, and its market share in the world textiles has been declining. Another pillar industry, the leather industry, has also been severely affected by the shortage of oil and gas energy.
Heavy debt pressures
For many years, the Pakistani government has been sluggish and has insufficient tax revenue, but the need for security and people's livelihood has made it difficult to cut government spending. The sharp rise in international crude oil prices in recent years has caused Pakistan, which lacks oil and gas resources, to soar in spending. Under the domestic and foreign difficulties, Pakistan can only borrow to survive, resulting in a significant decline in Pakistan's foreign exchange reserves, and an international payment crisis looming.
Reform of the tax system
Pakistan's tax system is unreasonable, and many industries and social elites are trying to avoid taxes. Inadequate tax revenues have led to government strain on public spending, such as less than $100 million in public health care in annual budgets and less than 50 cents per person per year. In the long run, it will lead to insufficient stamina for social development.